2. Agenda
• South Africa at a glance
• ArcelorMittal South Africa’s standing
• ArcelorMittal’s involvement
• Strategy going forward
• Commitment to the economy & community
– Safety, Health & Environment
– Corporate Social Responsibility
• Outlook
1
4. The South African Economy
Comparison between Steel Consumption,
GDP & GDFI (Q2-Q4=FC)
• Current six-year upswing now 180
twice the duration of the last (1993- 170
96) upswing and still going strong
Index 1Q 2000 = 100
GDP
160 GDFI
(GDP output growth at 4.5%). Steel Cons
150
• Real fixed investment doubled 140
during 1994-2005. 130
• Inflation way down its 1986 peak. 120
• Government spending as a share 110
of GDP increased from 22% in 100
2002 to an expected 27% in 2007. 90
2000 2001 2002 2003 2004 2005 2006 2007
At GDP growth of 3%, steel demand should be 3%; but at 6% steel demand should be 20%
3
Source: STATSSA & SARB Quarterly Bulletin
5. The South African Market
Geographical sales distribution in 2006 Manufacturing
• Although manufacturing production fell from 6.2% in Q1
,
2007 to 4.6% in Q2 2007, the overall trend for growth in
Africa, 9%
this sector is expected to remain on the positive side for
the foreseeable future.
South Africa,
Europe, 4%
72%
• The slowdown, especially in June to 2% was as a result
Americas, 4%
of the weaker competitiveness emanating from currency
strength.
Asia, 11%
• Production of durable goods such as motor vehicles
was also heavily affected by the higher interest rates
and the introduction of the new credit act.
Domestic market segmentation in 2006
• The recent weakening of the RAND should improve this
Packaging
short term situation
Other 9%
3%
Automotive
13%
Building
Building and • Non-residential building plans passed recovered
construction
strongly over the last couple of years.
Energy,
36%
mining
• The relative strength of construction activity and fixed
9%
investment drive not only cement sales but that of steel
especially rebar.
Machinery &
Equipment
• Prospects for construction growth remain positive given
Furniture and
9% Pipes and
the infrastructural investment drive which is likely to be
applicances
tube (welded)
3%
undertaken in the run-up to the 2010 Soccer World Cup.
18%
Manufacturing and Building & Construction make up almost 80% of local steel demand
4
6. South African Iron & Steel Sector
• Employed 15 060 people (2005 = 16 476 or down 8,6 %).
• Produced 8,6mt of crude steel (2005 = 8.8mt or down 1,1%).
• Produced 7.7mt of finished steel products.
• Sold 5,8mt finished steel products to the domestic market (incl. imports), up 28%.
• Exported 2,4mt of finished steel products, down by 74%.
• Iron & steel products contributed 1,7% to GDP and 7.5% to the total value of sales by the manufacturing
industry.
ArcelorMittal South Africa produced 82% of the country’s liquid steel
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7. ArcelorMittal South Africa’s position
in context Employee reduction (000)
14.5
9.8
• Turnover = R25bn (US$3.8bn).
• Produces 7.1 mt of liquid steel per annum (long & flat steel).
2001 2006
• A modern, highly competitive supplier of steel products to the
domestic and global markets. Liquid steel production (mt)
7.1
• ArcelorMittal South Africa is amongst the world’s lowest 6.5
quartile cash cost producers of steel.
• Benefit to the country/community:
• Direct taxes to the state US$660m (R4 469m). 2001 2006
• Remunerate employees US$330m (R2 243m). Finished steel products to the
domestic market (mt)
• Procurement from affirmative business enterprises
3.6
US$110m (R732m).
2.3
• Pay shareholders with cash dividends US$230m (R1 550m).
2001 2006
ArcelorMittal South Africa produced 82% of the country’s liquid steel output in 2006
6
9. Evolution of ArcelorMittal South Africa
2006
2004/5
2002
2001
1997
1989
1928
Iscor Mittal
Iscor
Iscor Iscor enters LNM lifts
Unbundling
founded Steel
embarks
privatized into stake to
of steel &
merge
on major
and listed Strategic over 50%
mining into
with
Restruct-
on the JSE partnership and name
Iscor &
Arcelor
uring with LNM changes to
Kumba
to form
programme (LNM 34% Ispat Iscor
ArcelorMittal
share- LNM and
Holding) Ispat
Start of merge to
BAA form
Mittal Steel
Company in existence for almost 80 years
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10. ArcelorMittal South Africa
Overview of Operations
Thabazimbi
• Flat Steel Products iron ore mine
• Vanderbijlpark Works – 3.2 Mtpa*
• Saldanha Works – 1.1 Mtpa* Johannesburg
• Long Steel Products Vanderbijlpark
• Newcastle Works – 1.5 Mtpa* Vereeniging
• Vereeniging Works – 0.4 Mtpa*
Newcastle
Sishen
iron ore
• Iron ore supply mine
Durban
• 6.25 Mtpa from Sishen South
• 2.5 Mtpa from Thabazimbi Africa
• Coke & Chemicals
• Coke - 597 000 tpa*
Saldanha
• Tar - 133 000 tpa*
Cape Town
* Based on 2006 actual final product sales
Steel plants in close proximity of key markets
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11. Company Structure
ArcelorMittal
ArcelorMittal South Africa Limited
Flat steel products Long steel products
Vanderbijlpark Works Saldanha Steel (Pty) Ltd Newcastle Works Vereeniging Works
Hot rolled Hot rolled coil Rolled profiles Rolled profiles (Vereeniging)
Heavy Plates - thin and ultra thin Special profiles (Pretoria)
Cold rolled Forged products (Pretoria & Vereeniging)
Coated Seamless tubes (Vereeniging)
- Galvanised Directly reduced iron (Dunswart)
- Painted Coke & Chemicals Joint Ventures
- Tinplated
Coke batteries
- Pretoria Mr Eric Samson
- Vanderbijlpark
- Newcastle 50%
- Vanderbijlpark Macsteel International
50%
(Pty) Ltd
Tar plant
- Vanderbijlpark Export marketing
Shipping
Nampak Ltd Anglo American Ltd
40% 50%
50% 50% Consolidated Wire
Collect a Can (Pty) Ltd Industries (Pty) Ltd
Can Reclamation Wire drawing
Diversified primary steel producer
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12. Management
Rick Reato CEO
Kobus Verster Executive Director, Finance
Juba Mashaba Executive Director, Human Resources
Johan Fourie Chief Operating Officer
Hercu Aucamp General Manager: Sales & Marketing
Tami Didiza General Manager: Corporate Affairs
Heyno Smith General Manager: Vanderbijlpark Works
Heinrich Kriel General Manager: Saldanha Works
Jaco Stapelberg General Manager: Newcastle Works
Jose Gutierrez General Manager: Vereeniging Works
Alph Ngapo General Manager: Coke & Chemicals
Highly experienced management team with 166 years service amongst them
11
13. Operational improvements over time
Liquid steel output since first production
Operating margin since first production
40.0 7.662
8
7.055
Data n/a during WW2 33.1
35.0
7
30.0
6
25.0
5
(Mtpa)
(%)
20.0
4
15.0
3
10.0 2
5.0 1
0.0 0
1935 1945 1955 1965 1975 1985 1995 2005 1934 1944 1954 1964 1974 1984 1994 2004
• Increase in operating margin since ArcelorMittal investment
• Steady increase in steel output to 7.1mt. Growth potential to 9.7mt
Output levels increased since ArcelorMittal investment.
Margins were steadily eroded until recent actions established new trading range
12
15. Search for International partner
• Iscor searched for international partner that could assist with:
– Business issues:
• Needed international exposure.
• Real benchmarking.
• Knowledge sharing.
– Technical assistance:
• R & D.
• Output/throughput & yield/prime %.
– Procurement:
• Coal/alloys/refractories/electrodes.
– Marketing:
• European auto markets.
• LNM approached and became the preferred partner.
Stagnation of efficiencies and a decline in through yield prompted the search
14
* Through yield: Liquid steel to final product
16. Technical assistance
• Key technical improvements resulting from the relationship with ArcelorMittal
includes:
2001 2006
Liquid steel production (‘000t) 6 468 7 055
Through yield* (%)
• Vanderbijlpark 82.0% 83.8%
• Newcastle 88.4% 91.6%
• Saldanha 94.0% 94.0%
Prime output (%)
• Vanderbijlpark 88.0% 87.2%
• Newcastle 99.3% 99.97%
• Saldanha 81.0% 97.0%
Efficiency improvements realised R1 386million savings
15
* Through yield: Liquid steel to final product
17. Capital expenditure assistance
ArcelorMittal contributed towards project management assistance on large capital projects, including:
Vanderbijlpark:
BOF control systems.
ArcelorMittal project
Blast Furnace C – throat armour repair.
Blast Furnace D – rebuild.
management assistance
New DRI kilns.
Blast Furnace D – Hot blast stoves.
New galvanising line.
2 new cells on Electro galvanising line.
Newcastle:
Pulverised coal injection.
New market coke battery. Saldanha:
Coke & chemicals:
Third roll
Market coke expansion.
grinder.
Capital expenditure totalled R3.1bn over the last two years
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19. Vision & long term objectives
Vision
Quantitative strategic objectives
Qualitative strategic objectives
• Increase liquid steel production capacity by
• Improve capabilities through a dedicated
2.6mtpa from 7.1mtpa to 9.7mtpa by 2011
focus on operational excellence
with efficiency improvements contributing
• Industry leading value creation for our
29%
shareholders
• Increase hot strip mill throughput at
• Positive economic value-add over steel
Vanderbijlpark from 3mtpa to 3.9mtpa
price cycle
• Increase through yield from 87.3% to 89.3%
• Improve market share in Sub-Saharan
together with significant increases in value-
Africa
added production
• Build and improve performance culture
• Enhance EBITDA by US$479m by 2011
• Be a responsible corporate citizen (2006 cost & price base)
• IRR of all capex projects exceeds 20%
• Capture more than 50% of the target market
Vision: To be a key player in the Sub-Saharan Africa steel market while also being one
of the highest operating margin steel producers globally
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20. Africa Map & target market
Key elements of strategy
Total Sub-Saharan Africa market
estimated at 18.4mt by 2011, of
which the target market is 14.9mt.
South Africa plans to capture in
excess of 50% of the latter.
Sub-Saharan African
Focus on products in demand in
steel market
this market
Focus is to be a key player in the Sub-Saharan Africa steel market
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21. Key elements of strategy
All operations De-bottleneck & improve efficiencies
Recapture production losses
Operations Cost leadership
Vanderbijlpark & Increase liquid steel production & add downstream
Newcastle capacity from 2008 to 2011
Establish presence Re-commission existing mill and install new bar/rod mill.
in Mozambique Existing mill 2008 / New mill 2009
Cost Vanderbijlpark Replace aged coke oven batteries by 2011 - more efficient
design
Iron ore supply Secure participation rights in new developments
Sourcing Procurement Cost leadership (TCO)
Public/Government/
Sustainable Improve image and relationships
Environment/
Development & Address legacies & comply with new legislation
Social Investment community
Responsibility
Securing raw materials for the expansion strategy is a crucial element
Value in Flat products and Volume at long products
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22. Strategy
We want to be one of the highest operating To be a key player in the Sub-Saharan
margin steel producers globally Africa steel market
Strategic drivers for creating value for our shareholders:
Strategic goals
• Sales revenue:
• Industry leading value-creation for our shareholders:
– Africa vs Export sales.
– Positive economic value add over the steel cycle.
– Increase production of value added products.
• Sub-Saharan market leader:
• Cost reduction:
– 80% sales into Africa.
– Efficiency improvements & technology upgrade (PCI).
– Raw materials initiatives.
• Improve operating capabilities:
– Iron ore expansion projects.
– Value-creating throughput increases of 2.6mtpa.
– Reduce dependence on imported coking coal.
– Procurement initiatives.
• Build on our existing performance culture:
– Create an environment that generates true employee
pride and attracts, develops and retains top- • Throughput expansion:
performing people. – Productivity improvements.
– Productivities and de-bottlenecking.
• Be a responsible corporate citizen. – Capital investments.
• Corporate Social Responsibility:
– Investment in community, environment & human
resources.
To be a key player in the Sub-Saharan Africa steel market while also being one
of the highest operating margin steel producers globally
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23. Liquid steel development – 2006 to 2011
(Tonnes ‘000)
12 000
1 887
10 000
500
8 000 220
6 000
9 662
4 000
7 055
2 000
2006 New DRI kilns at Efficiencies Projects under 2011
Vdbp investigation
Efficiency improvements play an important role in our expansion strategy
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25. Safety focus
Lost Time Injury Frequency Rate (Employees and Contractors) The impact of the overall SHE programme
is evident in our safety performance
7
Lost Time Injury frequency rate (LTIFR)
indicators. The following was achieved
during the first 6 months:
6
• H107 performance negatively affected by
Blast Furnace rebuild.
5 • ArcelorMittal South Africa achieved 26
days without LTI (about 3.7m LTI free man
hours).
4
• 172 days without an LTI at Saldanha
Works - new record.
3 • 1m LTI free hours achieved:
– 4x at Vanderbijlpark Works.
2 – 3x at Newcastle Works.
2002 2003 2004 2005 2006 2007
IISI ArcelorMittal South Africa (LTIFR)
Blast Furnace D rebuild impacted on our most recent safety record
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26. Implementing an ambitious Corporate
Social Responsibility strategy
Waste/By-
Air Pollution Water
ISO 14001
product
Management Management
Management
• Air pollution biggest • Saldanha and • 75% of waste/by-
• All production
environmental risk. Vanderbijlpark have products is recycled
facilities are certified
zero effluent status. or sold within the
besides the
• Planned projects: group.
Dunswart DR Kiln • Newcastle to follow
- Coke gas cleaning
operation in 2008 after
system completion of • Target is to achieve
- New dust/fume crystalliser plant. a sale/ recycling rate
• Target for Dunswart
extraction system at • ArcelorMittal South of above 90% by
certification is end
both Vereeniging Africa’s consumption 2011.
2008.
and Vanderbijl plant is world class at 3.2
- EAFMeltshop at m3/ton of LS
both Vereeniging produced.
and Vanderbijl plant
- New sinter off gas
cleaning system
Future focus is on air quality
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27. Corporate Social Responsibility
Current CSR projects
• ArcelorMittal South Africa Science Centre
Committed towards
“making a
- Partnership between Gauteng Department of Education and
sustainable
ArcelorMittal South Africa
difference”.
- 1 690 learners & teachers (Sedibeng District) receive maths
& science classes from highly trained teachers
- Renovations, upgrading & operations sponsored by
ArcelorMittal South Africa (R8,5m in 2006).
- High tech computer centre now completed (2007)
Improving
education.
Corporate social
Enhancing housing
responsibility aligned
• Enterprise Development Fund to assist SME’s in
conditions.
with government
downstream steel sector (R250m)
Addressing
initiatives.
HIV/Aids
CSR • Gas cylinder project in conjunction with
Department of Minerals & Energy.
• HIV/AIDS program.
• West Coast Business Development Centre.
Forming strategic
Invested R220m in
alliances with
Social Projects aimed at
government
empowering historically
departments
disadvantaged • Bophelong Community Project.
communities.
CSR focus is on Education, Housing and Job Creation
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